The insurance industry has traditionally been dominated by brokers, agents, and manual, paper-driven processes that are inefficient and unresponsive to consumer needs. These processes also leave little room for insurance product customization and more often than not are associated with tiresome underwriting procedures. Episodic insurance, also known as on-demand insurance, is insurance coverage that is turned on and off as consumers require it.
Aspect
Explanation
Definition
Episodic Insurance is a specialized insurance model that offers coverage for specific, short-term events or activities rather than traditional, long-term policies. This insurance type is designed to provide temporary and on-demand coverage, aligning with the episodic nature of certain risks or needs. Episodic insurance policies can be purchased for events such as travel, sports, concerts, rentals, or short-term activities where individuals or businesses require immediate, tailored coverage. Unlike standard insurance policies, which often have long-term commitments, episodic insurance allows policyholders to secure protection for specific, time-limited circumstances, providing flexibility and cost-effectiveness. It leverages digital technology and mobile apps to offer quick, hassle-free access to coverage.
Key Concepts
– Short-Term Coverage: Episodic insurance focuses on providing short-term protection for specific events or activities. – On-Demand: Policies can be purchased and activated as needed, often through mobile apps or digital platforms. – Customization: Coverage is tailored to the unique risks associated with the event or activity. – Flexibility: Policyholders have the flexibility to obtain coverage for the exact duration required. – Digital Accessibility: Episodic insurance leverages digital technology for easy accessibility and claims processing.
Characteristics
– Event-Specific: Policies are designed for particular events or activities. – Immediate Activation: Coverage can be activated quickly, often on the same day as the event. – Tailored Coverage: Episodic insurance offers customizable coverage options. – Digital Platforms: Accessible through websites and mobile apps for convenience. – Cost-Efficiency: Policyholders pay only for the coverage they need, reducing costs.
Implications
– Cost Savings: Episodic insurance can be cost-effective compared to long-term policies. – Event Protection: Provides coverage specifically for the duration of an event or activity. – Accessibility: The digital nature of episodic insurance makes it easily accessible to consumers. – Tailored Solutions: Allows policyholders to tailor coverage to their unique needs. – Risk Mitigation: Helps mitigate risks associated with short-term events.
Advantages
– Cost-Effective: Policyholders pay only for the coverage they need, reducing costs. – Flexibility: Provides flexibility in obtaining insurance for specific events. – Immediate Coverage: Policies can be activated quickly, often on the same day. – Customization: Offers tailored coverage options to match unique risks. – Convenience: Accessibility through digital platforms makes purchasing and managing policies convenient.
Drawbacks
– Limited Coverage: Episodic insurance is designed for short-term events and may not provide comprehensive, long-term coverage. – Coverage Gaps: If a policy is not purchased for a specific event, there may be coverage gaps. – Complexity: Understanding and selecting the right coverage for each event can be complex. – Claims Process: Claims processing may vary depending on the insurer and may not always be straightforward. – Overlap with Existing Policies: Policyholders should ensure that episodic coverage complements existing insurance policies.
Applications
– Travel Insurance: Coverage for short-term travel, including medical emergencies and trip cancellations. – Event Insurance: Protection for events such as weddings, concerts, or festivals. – Rental Insurance: Coverage for rented items, such as cameras, cars, or equipment. – On-Demand Services: Insurance for on-demand services like ridesharing or home-sharing. – Sports and Adventure Activities: Coverage for activities like skiing, scuba diving, or adventure sports.
Use Cases
– Travel Insurance: Purchasing travel insurance for a specific vacation or business trip. – Event Insurance: Event organizers securing coverage for a concert or wedding. – Rental Insurance: Renting a camera and obtaining insurance for potential damages during the rental period. – On-Demand Services: Rideshare drivers getting insurance while actively driving passengers. – Sports and Adventure Activities: Obtaining coverage for a skiing trip or scuba diving excursion.
With digitization revolutionizing similarly archaic sectors such as real estate and banking, consumers now expect the insurance industry to follow suit by offering on-demand insurance coverage that is both seamless and convenient to obtain.
Insurtech companies have responded to the call for on-demand insurance by utilizing a range of technologies including the Internet of Things (IoT), blockchain, mobile sensors, artificial intelligence, and other interactive processes.
Episodic insurance is just one aspect of this new era, enabling consumers to purchase insurance cover on their smartphones as and when it is required without interacting with a broker or company representative. In general, there are no long-term contracts, and premiums are paid for within the app. Claims, on the other hand, are handled in a mobile chat interface.
Episodic insurance characteristics
Fundamentally speaking, episodic insurance companies must provide a seamless customer experience while also making rapid and accurate risk assessments.
This dual ability requires capabilities such as:
Multi-channel data collection – insurers must collect data from IoT devices and connected technologies such as telematics, smartphone sensors, and wearables. Detailed data on insurance coverage duration and risk is then used to determine the premium that should be charged. For example, the premium a drone pilot is charged may depend on how fast or high they tend to fly their drone.
Continuous data analytics – on occasion, episodic insurance will require continuous underwriting as the risk profile of the coverage changes. One example is usage-based vehicle insurance, where premiums are determined by driving behavior and how many miles are driven over a set period.
Customer-centric productdesign– traditional insurance companies have a tendency to be inflexible and insure consumers in areas they didn’t request. Episodic insurance, on the other hand, covers consumers for exactly what they need and nothing more.
Episodic insurance types
While episodic insurance is a relatively recent development, several types are already being utilized. These include:
Continuous underwriting – where the risk profile of the individual, business, or asset being insured is constantly updated. As noted earlier, this has been made possible by advances in IoT devices.
Sharing economy insurance – this form of episodic insurance covers the risks and liabilities that are specific to an asset that is shared. Companies such as Airbnb (homes), Lyft (rides), and Task Rabbit (skills) are prime examples.
Microinsurance – which is intended to cover smaller or time-specific events and occasions. Many examples of microinsurance predate episodic insurance as we understand it today. Travel insurance is one example, where a traveler protects against theft or sickness over the course of their vacation. Coverage for a one-time rental of expensive assets is another example, such as a wedding photographer taking out cover for the use of a high-value lens for the weekend.
Key takeaways:
Episodic insurance, also known as on-demand insurance, is insurance coverage that is turned on and off as consumers require it. Like other industries with traditional and archaic practices, the insurance industry has been made more efficient by IoT devices and artificial intelligence.
Episodic insurance characteristics include multi-channel data collection, continuous data analytics, and customer-centric productdesign.
Episodic insurance is a relative newcomer to the insurance industry. Three types have started to emerge: continuous underwriting, sharing economy insurance, and microinsurance.
Episodic Insurance: Key Takeaways
Traditional Insurance Challenges: The insurance industry has historically relied on manual processes, brokers, and agents, leading to inefficiencies and lack of customization. Episodic insurance, or on-demand insurance, is emerging as a response to consumer demand for more convenient and tailored insurance solutions.
Technological Transformation: Insurtech companies are leveraging technologies like IoT, blockchain, AI, and mobile sensors to offer seamless on-demand insurance experiences.
Episodic Insurance Definition: Episodic insurance allows consumers to purchase insurance coverage when needed, without long-term commitments. Premiums are paid within the app, and claims are handled through mobile chat interfaces.
Characteristics of Episodic Insurance:
Multi-Channel Data Collection: Data from IoT devices, telematics, sensors, and wearables informs risk assessment and premium calculation.
Continuous Data Analytics: Some types of episodic insurance require ongoing risk evaluation, such as usage-based vehicle insurance.
Customer-Centric Design: Episodic insurance focuses on covering exactly what the consumer needs, avoiding unnecessary coverage.
Types of Episodic Insurance:
Continuous Underwriting: Risk profiles are updated in real-time, facilitated by IoT devices and connected technologies.
Sharing Economy Insurance: Covers risks specific to shared assets, seen in platforms like Airbnb, Lyft, and TaskRabbit.
Microinsurance: Provides coverage for smaller or time-specific events, like travel insurance or short-term rentals of valuable assets.
Key Takeaways:
Episodic insurance responds to the demand for customized, on-demand coverage.
Technological advancements, such as IoT and AI, are driving the transformation of the insurance industry.
Episodic insurance offers flexibility, customer-centricity, and efficiency, catering to modern consumer expectations.
The insurance company revenuemodel revolves around a claimant receiving compensation in the event of an accident, illness, death, or damage to an asset resulting from theft or a natural disaster. In return for continual insurance cover, the company charges a regular fee – otherwise known as a premium. In essence, insurance companies make money by carefully considering the risk of each policy. They bet that the holder will continue to pay for insurance coverage and never be required to make a claim.
Root Insurance is an app-based car insurance provider founded by Alex Timm and Dan Manges in 2015. Since the age of fourteen, Timm, who has worked in insurance, wanted to streamline the insurance application process for both the consumer and the insurance company. The company makes a profit if the value of insurance premiums exceeds compensation payouts. While the company does have some overheads, its costs are much lower without the need to maintain physical branches.
Next Insurance is an insurance technology company founded by former co-workers Guy Goldstein, Alon Huri, and Nissim Tapiro. Drawing from the popularity of so-called insurtech companies they launched a website in 2016 with $13 million in funding. Next Insurance began by offering insurance tailor-made for photographers and personal trainers. Next Insurance makes money via the premiums it charges to customers every month.
A real-time insurance business model enables Tesla to build its own insurance arm, by dynamically adjusting the premiums, based on real-time driving behavior. Reduced insurance premiums hooked with the leasing arm, enable Tesla to scale its demand side of the business.
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A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
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The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
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A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained businessmodel (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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